Morning Commentary: Travel names in convertibles market improve as equities rebound

By Abigail W. Adams

Portland, Me., Dec. 21 – There was an uptick of activity in the convertibles secondary space on Tuesday as equity markets rebounded from Monday’s sell-off.

The Dow Jones industrial average was up 290 points, or 0.83%, the S&P 500 index was up 0.44%, the Nasdaq Composite was up 0.33% and the Russell 2000 index was up 2.16% early in the session.

There was $87 million in reported volume about one hour into the session with travel names active.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were in focus and gaining alongside stock.

The 1.25% convertible notes were up almost 4 points with stock up almost 4%.

The notes were changing hands just shy of 130 versus an equity price of $40.96.

There was $6.5 million in reported volume on the tape.

Southwest’s stock traded up to $40.98, an increase of 4.12%, shortly before 11 a.m. ET.

Expedia Inc.’s 0% convertible notes due 2026 (Baa3/BBB-/BBB-) were also active early in the session.

The 0% convertible notes rose 1.375 points outright.

The notes were changing hands at 112.75 versus a stock price of $167.47 early in the session.

Expedia’s stock traded up to $173.74, an increase of 6.96%, shortly before 11 a.m. ET.

While so-called “reopening trade” names have taken a hit due to the emergence of the Omicron Covid-19 variant, travel demand is expected to remain strong through the holiday season.

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